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June 28, 2007

Fixed-Income a Great Fit for Retirement

Fixed income is an asset class that offers plenty of upside for investors, in particular those planning for retirement. Yet, says Jim Tracy, national sales director for Minneapolis-based The Hartford Mutual Funds (a division of Hartford Life), many investors and financial advisors are more than a little wary of fixed income, especially now that it has become extremely complex with the proliferation of derivatives and other structured products--even if these have created great new investment opportunities.

"Most financial advisors don't know how to include, say, a floating-rate loan or an emerging market bond in a client's portfolio," Tracy says. "It is hard for advisors to purchase fixed-income assets on their own, even if they know that these can provide attractive returns for their clients, and very few have a strategy for diversifying their clients' fixed-income investments."

As such, there is an overwhelming demand from advisors for "packaged" solutions in the fixed-income arena, Tracy says, investment vehicles that offer easy access to a broad range of fixed-income assets. In order to meet this demand, the Hartford has recently come out with three new funds: A high yield municipal bond fund; a strategic income fund and a new fund-of-funds called "The Hartford Checks and Balances Funds," which brings together three of the company's already existing funds.

Both the high yield municipal bond fund and the strategic income fund, Tracy says, seek to offer investors that are saving for retirement the benefits of the diversity of the fixed-income market through a single entry. "These funds give advisors and their clients access to fixed-income asset classes that they could not get on their own," Tracy says.

In the high yield municipal bond space, the new Hartford fund will seek to maximize tax-free income. The fund has $13 billion in assets, and hopes to meet some of the great demand financial advisors have for tax-free, municipal bonds, Tracy says.

"Financial advisors really like high yield municipal debt because their clients want tax-free investments," he says. "We're offering them a good way to get to the asset class."

The new strategic income fund will invest in just about any fixed-income instrument anywhere in the world, Tracy says, including high yield corporate debt, emerging market bonds, high quality international corporate and government bonds, floating rate loans, and mortgage-backed and asset-backed securities. The fund will offer the potential for enhanced diversification with lower volatility, he says, and with the 7% returns it will offer, it is a particularly good fit for retirees.

Finally, the "Hartford Checks and Balances Fund" invests in three of the Hartford's funds--the capital appreciation fund, the dividend and growth fund, and the total return bond fund in order to allocate assets among different classes and investment styles, and leverage the best they have to offer. The company has been marketing its Checks and Balances strategy (which combines cash, stock, and bonds with low relative volatility in order to achieve long-term gain) for the past two years in the U.S., Tracy says.

"These funds make sense together because when you look at what most financial advisors do, a lot of the allocations that they recommend to their clients look very similar to our checks and balances approach," Tracy says. "However, if an advisor has to invest in three separate funds, it is not so tax efficient. Many advisors loved our Checks and Balances approach, but wanted it on a single ticket, and this is what we have done. The single fund comes as a response to financial advisors in order to make the strategy easier to implement and more tax efficient, with automatic rebalancing."

Indeed, the Hartford's new funds, in particular the Checks and Balances fund-of-funds, come in response to feedback from financial advisors as to what they want to help clients build diverse portfolios, Tracy says. Increasingly, retirees want to know how to better understand and use fixed income investments, and know what kinds of investment options and tools are available to build diversified financial portfolios. They also want to take advantage of the opportunities that exist globally, he says, and advisors need to be able to come up with simple, easy-to-understand options to meet these demands.

Minimum initial investment for each of the new Hartford funds is $1,000 or $50 to open with an automatic investment plan of $50 per month, the company said in a statement. The Hartford now has 54 mutual funds with more than $42 billion in assets under management.

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